Impact Investing

Create jobs

The high unemployment rate in South Africa is solvable and SMEs are a key component to achieving this. Today, SMEs make up 91% of formal businesses, employ 60% of the labour force and contribute ~45% to GDP[1]. These are encouraging stats, however when unpacked, we see that 2/3rds of these SMEs do not employ anyone outside the founding team.

The Secha approach is to help established businesses scale efficiently and as a result employ many more people in sectors that are traditionally large contributors to the labour force i.e. FMCG and Agri-Business. We bring the operational expertise to grow businesses beyond a small operation, towards medium and large enterprises

[1] Bureau for Economic Research: The Small, Medium and Micro Enterprise Sector of South Africa,2016

Address the management gap

The top 3 challenges faced by SMEs in South Africa are: 1) Skills deficit; 2) Funding; 3) Limited access to markets[2]. SME founders more often than not, do not have a tertiary education, or cannot afford a university graduate to help them formalise their businesses. In South Africa, university graduates are very quickly snapped up by large corporates, with the result being that SMEs are unable to tap into the talent pool needed to grow their businesses

The Secha approach solves these three challenges neatly while still providing attractive returns for investors by using sweat equity as a multiplier on the capital return:

• We provide capital for these businesses to scale, but also ensure we transfer our skills and experience to the management team who will work towards a well-defined long term strategy

• Our skills and experience are built from top tier global universities and the experience working with multi-national corporations both locally and internationally

• We share these skills with SMEs through our 9-month accelerator toolkit

[2] SiMODiSA: Accelerating the Growth of SMEs in South Africa, top 25 constraints inhibiting the development of effectively functioning entrepreneurial ecosystems in South Africa

Focus on the missing middle

Funding for businesses is most concentrated at the start-up phase (traditionally tech/ finance industries), or at the late stage strategic acquisitions. Between those two phases there are many businesses who are left to fend for themselves. The issue with start-up funding is that it is extremely risky: 7 out of 10 businesses fail within their first three years[3]. Late stage strategic acquisitions are extremely rare, and while it could be an aspiration for most established businesses, it is highly unlikely that more than a handful of the two million plus SMEs will ever reach that stage.

The Secha approach is to focus on the missing middle, companies who have passed the proof of concept phase, who have a tangible product or service that has seen market acceptance and help them scale.

• For investors, the risk is drastically reduced while returns are amplified by the sweat equity earned by taking operational roles

• We help these businesses reach full potential and then recycle capital to help the portfolio of OpCos to grow

[3] SMESouthAfrica.com: The Big reason why SMEs with business support do better than those without, 2015

Build businesses with a purpose

Impact investing is a relatively new approach to investing. Most investors believe there needs to be a trade-off between financial and social returns. In an economy with tangible social and environmental challenges, capital is often allocated discretely for financial or social return, with limited overlap.

At Secha, we believe in doing well by doing good [4]. There does not have to be a trade-off between social and financial return.

• We target investments with sustainable business models and an intrinsic focus on a product or service that delivers social impact. When the businesses succeed they can deliver financial and social returns at scale

[4] Impact Alpha defined by The Case Foundation: A growing number of investors are making the case that “impact” may represent a fundamental insight that the rest of the market doesn’t yet fully value, raising the possibility of market beating returns. These investors reject the trade-off between social impact and financial return— rather than seeing returns or impact they see returns from impact.

Invest for the long-term

We are a patient capital impact investing holding company. We use red ocean and blue ocean strategies to grow business through operational improvement. We believe in long-term operational support instead of a "quick flip" via financial engineering.